Court reiterates employees cannot contract out of ESA

Here are two things I want you to know before you even start reading this

Court reiterates employees cannot contract out of ESA

by Mike MacLellan

Here are two things I want you to know before you even start reading this blog:

  1. Subsection 5(1) of Ontario’s Employment Standards Act (“ESA”) says that you cannot contract out of, or waive, any minimum standard in the ESA;
  2. Subsection 9(1) of the ESA says that when there is a sale of business, and the purchaser continues to employ the seller’s employees, those employees have to be given credit for their years of service with the seller when it comes time to calculate their termination entitlements.

An architect (“Ariss”) was employed from 1986 until 2002 when his firm was sold to another business (“NORR”). On the very same day that his employment came to end with the old firm, the new firm offered him the same job. Fun fact: if you sell your business and the purchaser does not employ your employees, you remain on the hook for all their termination entitlements. You can’t sell employees.

In 2002 when Ariss accepted employment with NORR, he signed off on a contract which may or may not have had an attachment, “Pay Code 4” that specifically illustrated that if he was terminated without just cause, he would be entitled only to the minimum entitlements under the ESA. Those entitlements are, generally speaking, one week of notice for each full year of employment up to a cap of 8 weeks.

In 2006, Ariss decided that he wanted to work more hours and make more money. NORR eventually agreed, and required Ariss to sign off on a new contract, this time attaching “Pay Code 3”. There was no dispute that Ariss saw, read, understood, and acknowledged the substance of Pay Code 3, which also expressly limited his entitlements on termination to those minimums required by the ESA.

Then in 2013, Ariss decided that he wanted to work less hours and make less money. He asked to be moved to part-time, with fewer hours and proportionally less compensation. NORR was reluctant, but after lengthy negotiations (including Ariss having legal advice), it was agreed that Ariss would resign from employment, and be rehired as a part-time employee with a new start date. Yes, Ariss signed a contract that specifically agreed that all previous employment would not count for purposes of calculating his termination entitlements, if NORR ended his new employment without just cause.

NORR ended his new employment without just cause. This was in 2016, and so it gave him 3.5 weeks’ notice fulfilling its strict obligations under the ESA. But as so often happens, the employee claimed this was not enough. Ariss claimed that since NORR terminated him on a without cause basis, he was entitled to common law reasonable notice of termination since his work began in 1986. Here’s another fun fact: unless your employment contract expressly says otherwise, employees who are terminated on a without cause basis are deemed to be entitled to reasonable notice at common law, not according to the ESA. What’s the difference? As a general proposition, just quadruple it.

NORR attempted to rely on the 2013 contract saying that Ariss’ previous 27 years of employment could be ignored, and that he was not entitled to any more than the 3.5 weeks’ notice that he got. The Ontario Court of Appeal upheld a ruling from the motions Judge, that both parties were wrong.

The Court held that due to subsections 5(1) and 9(1) of the ESA, the 2013 contract could not be enforced insofar as it attempted to erase Ariss’ employment history before then. The Court of Appeal agreed that the 2013 contract language was “an entirely artificial attempt to create an interruption in employment when in fact there was none.” But just when things looked their bleakest, the 2006 contract came to NORR’s rescue.

As in a number of CCPartners’ recent blogs (most recently this one by Susan Crawford), the Court considered whether the 2006 contract limiting Ariss to his minimum entitlements under the ESA in the event of his termination without cause could be enforced. It found that the 2013 contract modified the 2006 contract insofar as it changed Ariss’ hours of work, but that it did not affect Ariss’ waiver of his common law rights upon termination. The Court agreed that the 2006 waiver of Ariss’ common law entitlement to reasonable notice was “clear and unequivocal”, and that he “fully understood, both when working full-time and when working part-time, that his entitlements on termination would be in accordance with the ESA.”

Ariss received his entitled statutory notice of termination, but given that his employment began in 1986 as opposed to 2013 as argued by the employer, Ariss was also entitled to the maximum 26 weeks’ severance pay under the ESA for a total entitlement of 34 weeks or roughly 8 months. Still, it beats the 2 years’ notice he could have been entitled to at common law.

This case once again underscores the importance of properly drafted employment contracts, in two ways. First, if your contract is improperly drafted and does not provide at least ESA minimums, its terms will be void. Second, if you contract is properly drafted, it is a useful shield against costly common law claims. Employers are well advised to implement properly drafted employment contracts to protect their interests, and limit liability. The lawyers at CCPartners have extensive experience in drafting specific employment contracts in response to our clients’ individual needs.

Click here to access CCPartners’ “Lawyers for Employers” podcasts on important workplace issues and developments in labour and employment law.

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